Government LendingMortgage

Fannie Mae lifted by low rates, purchase mortgages in Q2

Purchase acquisitions reached $130 billion

Fannie Mae continues to reap the rewards of low mortgage rates as it posted a net income of $7.2 billion for the second quarter of 2021, up from $5 billion in the first quarter.

Refinances continued to account for the majority of the government-sponsored entity’s acquisitions. In the second quarter, refinances made up 65%, or $243.8 billion, of Fannie Mae’s $373.3 billion in single-family acquisitions, while refinances accounted for 70% or $545 billion of its single-family acquisitions in the year so far.

But in a departure from the past year, purchase acquisitions crested $130 billion, surpassing each of the previous four quarters. Half of those acquisitions were made by first-time homeowners, Fannie Mae reported.

The foreclosure moratorium drew to a close at the end of July, although borrowers have options to reduce their monthly payments. Fannie Mae reported that by the end of June, of the 1.4 million loans with COVID-19 forbearance, 24% have been reinstated, 24% have deferred payments, 24% have been paid off and 23% remain in active forbearance.

Including loans in forbearance, 2.08% of Fannie Mae’s single-family loans are seriously delinquent, a decrease of fifty basis points from the first quarter of 2021.

How fine-tuning MSR valuations can help lenders improve decision-making

As rates change and the market shifts to a more purchase-driven origination environment, lenders need to carefully monitor margins and profitability. If we’ve learned anything in the past year, it’s that operational flexibility and accurate servicing valuation are key to lending profitability.

Presented by: Black Knight

Executives on the earning call said the company remains undercapitalized, although Fannie Mae’s net worth grew to $37.3 billion in the second quarter. Its net worth to asset ratio also increased from 0.7% in the first quarter to 0.9% in the second quarter.

The company also continues to keep credit risk transfers on hold. In March 2020, both Fannie Mae and Freddie Mac hit pause on credit risk transfers, which shift a portion of the risk of credit losses on the mortgages they insure onto investors. Freddie Mac resumed those transfers by the end of 2020, but Fannie Mae has not since entered into any new credit risk transfer transactions.

As a result, the portion of its guaranty book covered by CRT has plummeted to 21% in the second quarter of 2021. In 2019, the last full year it engaged in CRT transactions, the risk-mitigation strategy covered 46% of its portfolio.

David Benson, Fannie Mae’s president and acting chief financial officer, said that Fannie Mae does expect refinances to fall in the second half of the year, due to a “modest expected rise in interest rates.”

On the quarterly earnings call, Fannie Mae CEO Hugh Frater said that, beyond Fannie Mae’s topline numbers and the rebounding economy, housing is still not affordable for many.

“We recognize the housing market we serve is not serving the needs of everyone,” said Frater. “We need to change that. Actions both large and small are needed to move housing in the right direction.”

Hugh also noted that Fannie Mae is on board with statements Housing and Urban Development Secretary Marcia Fudge and Federal Housing Finance Agency Acting Director Sandra Thompson have made, expressing their commitment to making the housing system more equitable.

The company also said that, in light of the uncertainty surrounding the pandemic, it will consider a hybrid work-from-home model for its employees. A significant majority of its employees are working remotely, it reported, although it is now allowing employees to work from primary office locations on a voluntary basis.

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